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"Pay-if-paid"Clause Enforced In Texas And New Mexico Payment; Condition Precedent

Friday, March 03, 2006 05:24 pm

"Pay-if-paid"Clause Enforced In Texas And New Mexico Payment; Condition Precedent

A federal appeals court has ruled that a subcontract "pay-if-paid"clause was enforceable under the laws of both Texas and New Mexico.

MasTec North America, Inc. held a contract with PathNet to construct a section of fiber optic network in New Mexico and Texas. MasTec subcontracted some of the work to MidAmerica Construction Management, Inc. The subcontract said it would be governed by the laws of the state where the work was performed. The subcontract also included the following payment provision.

"Upon final acceptance of the work by Contractor and Owner, Contractor will pay Subcontractor for the work at the prices and schedule described in the work orders; provided that, all payments to Subcontractor are expressly contingent upon and subject to receipt of payment for the work by Contractor from Owner, even if Contractor has posted a payment bond with Owner or the primary contract is on a 'cost plus' or other reimbursement basis requiring Contractor to pay subcontractors prior to being reimbursed by Owner."

MidAmerica performed work in both the New Mexico and Texas portions of the project and received progress payments from MasTec. PathNet then filed for bankruptcy and stopped making payments to MasTec. The prime contractor in turn refused to make further payments to MidAmerica, relying on the contingent payment clause in the subcontract.

The U.S. Court of Appeals for the Tenth Circuit was eventually [...]

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